Chart of the Month |
Defensive Stocks at a Premium

July 2, 2019  | by Ivo C. Nenin

Market Commentary

The valuation premium (forward price/earnings) of defensive stocks versus cyclicals has climbed steadily over the last seven months. Limited risk appetite, slowing growth, low interest rates and benign inflation all appear to be contributing to defensive-sector valuations, while the same factors have reduced the appeal of cyclicals. Defensives include utilities, consumer staples and telecommunications. Cyclicals include financials, materials, energy, industrials, consumer discretionary and technology. As seen in the chart, defensives traded at premiums in the approach to the last two recessions. Is this another sign that the market believes a recession is near?

CH1_Defensive_vs_Cyclical_Relative_Valuation_070219

Authors

X
Ivo Nenin is a member of the Investment team and is focused on developing forecasts for asset class return and volatility, creating macroeconomic dashboards for tactical asset allocation and modeling client portfolios. He is also involved in benchmarking, portfolio construction and investment implementation for Commonfund’s Global Multi-Asset Portfolio. Ivo previously assisted in managing Commonfund’s commodities program and as a fund analyst focused on valuation and reporting for the commodities and equity funds. Prior to Commonfund, Ivo worked at AIG in their Domestic Brokerage Treasury Department. Ivo earned an M.B.A. from New York University’s Stern School of Business in Finance and Management and his B.S. in Finance and Accounting from the University of Bridgeport. He holds CFA and FRM designations as well as FINRA 3, 7 and 63 licenses.
Ivo C. Nenin
Director, CFA, FRM
Subscribe to Insights Blog

Disclaimer

Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.

Disclaimer

Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.